Trustee's analysis of landmark tax incentive program disputed by state

January 09, 2013|By John P. Huston, Chicago Tribune reporter

In a battle that could lead to the abandonment of a local landmark ordinance, a Winnetka trustee's analysis of the economic impact of a state tax incentive program for historic homes concludes it shifted more than $3 million in taxes to the rest of the community over a 15-year period.

But the state agency that oversees the program said the analysis is predicated on false assumptions and overestimates the economic impact.

Winnetka trustee Patrick Corrigan began studying the issue last summer. His report is still in draft form, and the village considers it exempt from being released under the Freedom of Information Act, but the Tribune obtained a copy. It states that over a 15-year period, the owners of 15 landmark homes taking part in a property tax assessment freeze program collectively paid $3 million less in taxes than they would have if they weren't in the program.

Preservationists argue that number is inflated, but that even at that level, the impact to other property owners is relatively small when broken down year-to-year.

A Tribune analysis, reviewed by property experts, shows that the owner of a $1 million Winnetka home paid an additional $30.69 in tax year 2011 to make up for lower taxes paid by the owners of all nine homes now utilizing the incentive.

Local trustees have denied requests by both residential and commercial property owners for local landmark status in 2012, arguing partly that the property tax assessment program unfairly shifts their tax burden to others in the community. If the tax bill on a home is artificially lower, all other property owners' bills increase to make up the difference.

On its own, Winnetka's landmark designation is purely honorific and has no financial impact on the homeowner or other residents in town. But if the owners of a locally landmarked house invests more than 25 percent of the fair market value into qualifying repairs or renovations, they become eligible for a 12-year property tax assessment freeze through the state program.

"I personally don't want to pay anybody's taxes," said Corrigan, who voted in 2012 to reject five requests for local landmark designation.

To determine the collective impact of the property tax assessment freeze on 15 landmarked homes, Corrigan selected 12 non-landmark homes "of comparable age and were from multiple areas in the village and similar neighborhoods" to determine an indexed rate of increased assessed value.

"If these homes had not been landmarked and the (assessed value) was allowed to increase with the average index, the estimated increase in real estate taxes these homes would have paid would have been over $3 million," Corrigan's draft analysis says.

The Illinois Historic Preservation Agency, which oversees the property tax assessment freeze program, has had about 5,000 properties utilize the incentive during the last 26 years, according to Mike Jackson, deputy state historic preservation officer. Of those 5,000, 17 have been in Winnetka — or less than one per year, he said.

After reviewing Corrigan's analysis, Jackson wrote a response that said the incentive program poses "a relatively small impact on the taxing bodies," and that the number is closer to $1.7 million, rather than Corrigan's $3 million figure.

"This short term cost will be more than offset by a long-term future benefit to be gained," according to Jackson.

But the long-term tax benefits, as a result of the investment into the aging homes, are not represented in Corrigan's analysis, he said.

"This additional value would not have been there without the reinvestment, which was the whole point of the incentive," Jackson wrote.

He also notes that Corrigan's study focused on tax years 1995-2010, a period "of high real estate appreciation," but ignores the fact that actual tax rates are adjusted annually, meaning that increased assessments do not necessarily translate to greatly increased tax bills.

As part of Corrigan's research, he met twice with Bill Vaselopulos, director of the Tax Extension Department of the Cook County clerk's office, who provided guidance.

Vaselopulos said later in an interview that while "overall it seemed rather sound," Corrigan's study operated on several assumptions that are possibly problematic.

For instance, Corrigan's selection of 12 comparable non-landmarked homes to create an index rate of increase for assessed value may be flawed. If any of the 12 were improved during the study period, their values would have increased above ordinary assessment increases, making the index rate artificially high.

Corrigan said he did not determine whether the 12 homes had been improved during the study period due to time constraints.

Vaselopulos also said that without the incentive program, the landmarked homes may not have received upgrades and could have lagged behind projected value increases.

"To say that this is the burden that everyone is paying may be a little misleading," he said.

"My sense was that logically the steps he took kind of made sense, but it's difficult to pinpoint it with certainty," Vaselopulos said.

Corrigan said Vaselopulos raised similar concerns during their meetings, but that they did not impact the study's findings.

"I don't think it really affects the quality of the output," Corrigan said.

Winnetka trustees have hinted that they may consider repealing their local landmark ordinance, which would prevent future property owners from access to the tax assessment freeze incentive.

Corrigan said he was attempting to provide a transparent method of bringing actual statistics to the discussion.

"What I tried to show is, 'What is the real cost?' Now the decision that the community has to make is — is it worth it?" Corrigan said.